Into the third quarter of 2019, the Nigerian Federal Government, in the bid to protect and spur local production of agricultural produce, closed indefinitely the borders. This has been perceived by KPMG experts as a step in the right direction, owing to the rise of private investments in the sector and monetary policies to spur lending to the private sector.
While demand for local rice is expected to grow in line with strong drivers, worries are to how supply can be improved to improve self-sufficiency.
In the light of this, a rice industry review report launched by KPMG professional services reveals that consistent with the Federal Government’s faith in Nigeria’s agriculture sector capacity, rice demand in the country is expected to grow in line with strong demand drivers, such as increasing population and urbanisation, changing consumer preferences and humanitarian feeding, complementing the efforts of the Federal Government in economic diversification.
Rice, the third most consumed staple food after grains and cassava, is expected to see a surge in demand with rapid population growth anticipated to exceed 200 million by the year-end at annual population growth of 2.4 percent.
Also, according to the report, there has been a downward trend in the rural-to-urban ratio over the past 25 years. As more regions within the country become increasingly urban, consumption and demand for rice will increase.
Meanwhile, the report reveals that there is likely to be greater demand for locally produced rice as imports become more expensive given the uncertainty of the foreign exchange market and the probable ban of imported rice. Hence, there is a need for investment in local production to meet the persistent rise in rice demand.
Recall the advent of the border closure saw prices of rice among others surge by some 47 percent to N22,000, which supply not matching the current demand as the festive period draws near.
“Even though the volume of rice is increasing, the price is also increasing because we are scaling up our products with a lot of investments. The truth is if we want to accelerate our local capacity, we have to deal with the substandard imports and also protect our investors in this sector,” Ijeoma Emezie-Ezigbo, partner, deal advisory, says.
According to Emezie-Ezigbo, we can’t try to spur local production and leave the borders open as it will be counterproductive. Meanwhile, the border closure is not done in isolation as the CBN has also moved to spur lending to the productive private sector by increasing the bank’s Loan to Deposit Ratio to 65 percent.
“This will mean hopefully that increased investment in the sector will accelerate production in the sector and also drive prices down when supply matches with demand for rice,” Ijeoma adds.
The report also highlights the key trends and drivers for the supply of rice in Nigeria to consist of international price, which has increased due to natural disasters in rice exporting countries causing shortages and affecting importation by countries such as Nigeria; increased participation of the private sector in investments, and increased intervention from the government and supporting bodies.
“One major question was around so much money being spent on rice import and how the government is able to boost local capacity. One thing we have discovered from our sources is that while we’ve been having that gap in consumption versus production, local production has continued to increase as in the last few years, we’ve gotten quite a number of investments in local rice production across the different species by Nigerians,” Ayotunde Funsho, associate director, clients and market KPMG, states.
To mention but a few, according to the report, Dangote Group has invested over $1 billion in the construction of a processing mill in Hadin, Jigawa State. Also, Olam Nigeria Limited announced a total investment of $111 million to introduce mechanised rice farming in Nasarawa State coupled with running an out-growers programme.
Goodluck Obi, partner and head, consumer and industrial markets, KPMG Nigeria, says, “The world is changing and so is Nigeria; we cannot speak of the economy without mentioning the agribusiness.
“The current administration has identified agriculture as a key sector and growth driver for the economy. In line with the diversification drive of the current administration as well as in the fulfillment of one of its cardinal pillars of food security, a lot of policies have been put in place to encourage agribusiness in the country. This is, therefore, another opportunity for us at KPMG, to add value to our clients and businesses by assisting them to make informed decisions in this sector.”
Demand for rice is expected to grow in line with strong demand drivers, however, to achieve self-sustenance, the industry still requires significant investment.
